Japan's longest-dated government bond yields climbed to all-time highs on Tuesday, after a poor auction sparked a selloff in the bond market as worries about the country's fiscal health grow.
The 30-year JGB yield soared 17 basis points to 3.14%, while the 40-year yield surged 15 bps to 3.6%.
Following is some reaction from analysts:
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG :
"Rising debt levels in developed markets have become a growing concern in recent years, and the seeming lack of urgency about fiscal consolidation is leaving government bond investors increasingly jittery.
"For the Bank of Japan, this may mean that it may have to slow its quantitative tightening, helping to dampen yields in the Japanese government bond market. There is only so much central banks can do, however, in reining in government yields, without undermining their policy independence.
After years of generous spending and tax cuts, fiscal constraints are starting to bite. Japan is not alone in facing the need for budget consolidation, but volatility in other developed economies’ bond markets adds an extra layer of urgency to put the fiscal house in order."
MASAYUKI KICHIKAWA, CHIEF MACRO STRATEGIST AT SUMITOMO MITSUI DS ASSET MANAGEMENT, TOKYO
"Supply-demand conditions in the super-long sector are unstable. Growth expectations globally have recovered to some extent, leading to some recovery in BOJ rate hike expectations."
"People expect the BOJ will continue to raise rates and reduce holdings of JGBs. Many investors are probably thinking, especially for super-long bonds, what yield level is consistent with a policy rate at, for example, 1.25% and no support from BOJ buying. We are in a process of finding that equilibrium. It's a process of trial and error."
JPMorgan analysts in a research note
"Domestic investors' demand for duration is structurally slowing down. The BOJ's reduction in bond purchases is steadily progressing, making it increasingly difficult to absorb duration risk in the market.
While price formation without intervention from the MoF and the BoJ is ideal, some form of action is needed to stop the collapse of super-long JGBs at present, or there could be further super-long bond shocks triggered by downgrades or additional fiscal measures."
FRANCES CHEUNG, HEAD OF FX & RATES STRATEGY, OCBC, SINGAPORE
"The 20Y JGB auction did not go very well and there has been spillover onto long end bonds in the secondary market. Recent market performance and the gauge on demand for JGBs will be inputs to be weighed, ahead of BOJ’s interim assessment of its QT plan in June. Decision is to be made as to whether to stick with its plan to further reduce the monthly JGB purchase amounts."
HIROFUMI SUZUKI, CHIEF CURRENCY STRATEGIST, SUMITOMO MITSUI BANKING CORP, TOKYO
"Amid the global trend of rising long-term interest rates, JGBs are no exception and are facing upward pressure on yields. Regarding the JGB market, market participants are currently in the process of assessing demand during each auction, and stability remains elusive. I think that the upward pressure is likely to persist for the time being."
